With the diverging monetary policy biases between the Fed and the Reserve Bank of Australia, AUDUSD has been on the decline and looks poised to break below a key support area. Price is testing the lows around the .7600 major psychological level, creating a bearish flag pattern right on the floor.
A break below this area would set off more losses for the pair, as this support area has held in the past six years. On its 4-hour chart, stochastic is showing oversold conditions, which opens the possibility of a bounce. RSI is also moving higher, suggesting that Aussie buyers are taking control of price action.
The short-term simple moving average has just crossed below the long-term 200 SMA on the 4-hour chart, an early signal that a selloff is about to take place.
AUDUSD Fundamental Factors
Earlier today, China reported a larger than expected trade surplus, which was actually spurred by a slide in exports and an even larger decline in imports. This spells negative prospects for Australia’s raw material commodity shipments to the world’s second largest economy, which also happens to be its main trade partner.
Last week, the US printed a stronger than expected jobs report, which revealed that the economy added 280K jobs in May. This was higher than the projected 222K gain and the previous month’s 223K increase, but the jobless rate ticked up from 5.4% to 5.5% as more people returned to the labor force to resume their job hunt.
Traders might still wait for the US retail sales release this week before concluding that the slowdown in the economy is just temporary and that the Fed can be able to hike interest rates by September. For now, the US dollar could continue to hold on to its gains as market watchers also predict that the Australian economy could be in for further weakness.
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